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OPINION

Is mass transit the digital economy’s next victim?

Ashby Foote III, Guest columnist
Published 2:07 a.m. CT April 4, 2019

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The co-founders of ride-sharing service, Lyft took the company public and celebrated by ringing the opening bell of the NASDAQ Friday morning in Los Angeles, the company's biggest market. (March 29)
AP, AP

Are America’s mass transit systems headed the way of our shopping malls? Everyone has witnessed over the past two decades Amazon’s wipe out of old economy retail malls like a tornado through a trailer park. As it turned out, the combination of the internet, personal computers and quick delivery made online shopping much more popular than anyone dreamed. Even the most palatial brick-and-mortar offerings were no match for Amazon’s digital reach.

Now the disruptive innovators of Silicon Valley have turned their sights on city transportation. The transport of people in built-up urban areas would seem a tougher arena for the internet, but perhaps not. The enabling technology this time is the smartphone.

Moving people around cities has always been a challenge, and American cities have a rich history from the horse and buggy to cable cars to elevated and underground railways, not to mention fleets of buses and taxis. City planners and politicians faced with congestion and limited parking have usually turned to huge top-down projects that require billions of dollars in upfront investment and millions more in operations, maintenance and future capital investment.

Enter the smartphone — Apple introduced the iPhone in 2007 with the Samsung Galaxy introduced in June 2009. With the smartphone came the functionality of internet connection, messaging, maps, navigation, payment-processing and many other apps all at the user’s fingertips. But most importantly has been the widespread adoption of smartphones — there are now 250 million users in the U.S. and 3 billion users worldwide.

Put the right functions together and you can have a “taxi stand” in the palm of your hand no matter where you are.

Two companies, UBER and LYFT, and the entrepreneurs behind them had the foresight to create the ride-sharing marketplace with their software application platforms utilizing key functions available on the smartphone. In addition, they recruited an army of drivers in the cities they wanted to serve. It was an ambitious undertaking, but their success is undeniable despite neither company having yet to turn a profit.

In 2018, the two companies generated $13.4 billion in combined revenues, of which 75% went to the drivers who, after all, provide the cars. It is a capital-light business model that is being richly valued by the venture capital marketplace. Revenue growth is great, but profits are still a ways down the road.

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Uber has posted a loss of more than 1 billion dollars during the third quarter of 2018. Veuer's Natasha Abellard has the story.
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In addition to UBER and LYFT, there are now ride-sharing apps featuring bicycle and scooter sharing in some urban settings where such options make sense. For now, venture capital investors seem more than willing to continue funding the ride sharing industry’s very large losses.

Profits or not, ride-sharing apps are already inflicting serious pain on the old economy side of city transport. Since 2013, the price of a taxi medallion (permit to operate) in New York City has dropped 87% from $1.3 million to $160,000. There are also ominous signs with the rail systems in New York and the D.C. where revenue and ridership are declining. Ridership on the D.C. Metro system recently hit a 19 year low, a period that included a multibillion dollar upgrade and expansion. The system has 117 miles of track and in an area of high property values the cost to expand the system’s footprint is approximately $100 million per mile.

In the D.C. Metro 2019 Budget Book’s Executive Summary are these highlights: “Metro faces structural challenges associated with past underinvestment in the maintenance, rehabilitation and replacement of the system’s infrastructure and an unsustainable operating model. ... Customers have an increasing number of alternative modes of transportation to choose, including ride-hailing services, car-sharing and bike-share. While the ridership impacts have not been quantified, analysis has shown a shift during periods of reduced service.”

This is not good news to the local jurisdictions that already subsidize Metro System losses in excess of $1 billion.

Today’s smartphone has millions of times more processing power than NASA used to put a man on the moon in 1969, so it shouldn’t surprise that it can get us to a restaurant across town with ease. The convenience and reach of the ride-sharing approach to urban transport poses a serious if not existential threat to incumbent billion dollar mass transit systems.

Ashby Foote III is president of Vector Money Management and a Jackson city councilman for Ward 1.

Ashby Foote is a Jackson city councilman.(Photo: Special to The Clarion-Ledger)